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Wednesday, 25 March 2009 00:00

I can't pay my mortgages

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Nearly 60,000 houses were seized in Spain in 2008 and this year will be worse. Defaults on mortgage payments are treated by each entity in different ways, although usually it is the branch itself or the branch’s manager who, during the first weeks, contacts the customer to know the reasons behind the default and to kindly remind him that he must pay. If non-payment continues, the default notices get tougher, default interest and fees stipulated in the mortgage deed begin to accrue, which range from 5% to 6%, will be applied.

If the debt is not paid in an approximate term of three months, entities intensify their contacts (now from centralized departments) in hope of achieving the payment of the debt or, if that is not possible, at least to propose a new payment schedule (including the possibility of taking a new mortgage) which meets the needs of the customer.

They go through all of this because, as they say, banks are not real estate agencies and they are not interested in houses (they would assume the same problem you have: selling your house), they only want their money plus the interest.

When six months have passed and no agreement has been reached, entities start reclaiming the debt through means of legal channels, by commencing an action for default which, once it is accepted, results in the seizure of the house or, otherwise, of the assets submitted as collateral (if any). However, not everything is lost and the customer is still allowed to submit a payment agreement (including judicial costs) which would halt the judicial process and keep the assets from being seized. If seizure is executed, the payment of the debt (including the default interests, fees, judicial costs…) would be made out of the amount obtained in the auction and, if there is any left, it would be for the mortgage holder.

This is a long way that offers many possibilities of reaching agreements with the entities which, in general, will prefer to accept a refinancing proposal, extending the payment period so mortgage is adapted to the customer’s needs.

The best thing to do is sell the property even if it’s for a lower price and then pay most of the debt to the bank. Banks keep these actions in mind and take into account the honesty and sincerity, and could offer you, for instance, a new financing option so you could pay the difference between the amount obtained from the sale and the outstanding balance. In this event, you would pay a loan for the outstanding balance, but this is always better than appearing on delinquency lists such as ASNEF, because being part of such lists makes it impossible to get any other loan, at least until the first debt is paid off.

Declaring oneself insolvent is very difficult, as is selling your house at auction, the bank still cannot cover the debt and the judicial costs (lawyers, court representatives, etc…), therefore, they are entitled to withhold your salary, tax refunds, etc.

It is advisable to try to find a solution with the bank and first and foremost, try to avoid the seizure or the debt execution. It is always better to sell the property, even if you lose money and the amount obtained from such sale does not cover the mortgage debt, because if the property is sold at auction, the banks will have the house and also you will have a considerable debt, as the costs of the process will add to the pre-existing debt.

Here is a list of advice for those who are having difficulty paying their mortgage:

1. Never miss a payment.

2. The answer is not to leave the property in the hands of the bank; the paperwork for the auctioning off of a property can take a minimum of 8 months, and during this time, the interest accumulates. In reality and since the real estate market is falling, the price of the house doesn’t cover the total amount owed.

3. Never miss more than two payments. Upon the default of payment on three to six invoices, the bank begins a process to recover not just the missed monthly payments, but rather the entire mortgage due, plus the court costs (lawyers, court representatives, etc.) are brought against the debtor.

4. If the debtor can’t pay what is stipulated in the mandate, then the property is put up for auction. If the total sale doesn’t cover the debt owed, then other measures will be taken to recuperate the expense, like the seizure of salary, tax returns, etc.

5. Sell before you are no longer able to make payments. It’s important to exhaust all of the possibilities before succumbing to ejection. The market offers various alternatives: extending the terms of your mortgage, credit reunification, refinancing, etc.

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